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can run knew a lot of questions and still get out of here on time. first of all, we have allison frazier at the heritage foundation. director -- as director, allison oversees the heritage foundation research on a wide range of domestic economic issues, including federal spending, taxes, the debt, and the deficit. before joining heritage in 2003, frazier was deputy director of the oklahoma office of state finance where she worked for governor frank keating. next on the panel, we have rudy penner who is the institute fellow and the r.j. and francis miller chair in public policy at the urban institute. prior to that in his long and
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distinguished career, rudy was the director of the congressional budget office where he supervised marty regalia who didn't learn a lot from him and that's why i'm here but i remember those conversations and i hope i can do them justice today and he is deputy assistance secretary for economic affairs at hud and a senior staff economist at the council of economic advisors. and then finally last but not least, we have david walker, founder and c.e.o. of the comeback america initiative. david's formerly the comptroller general of the united states. he was also the head director of the -- of the u.s. government accountability office for almost 10 years. he is widely read and authored numerous articles on the debt
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deficit and he has a new initiative which i think makes tremendous sense and may doom it obscurity where things sometimes don't get discussed but david's new group is looking at the efficiencies, the inefficiency, the duplications in the government to try and find areas where we can save money without cutting. and i think it's a very interesting initiative and it's one that you all should look into and see about supporting and i hope that he will mention it at least briefly in some of his comments today. so with that introduction, i'm going to turn to the panel and i'm going to sit down and we're going to start discussion hopefully some of these issues.
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>> and i'll start with david on the right side and we'll just move right across. >> thanks for coming. first, there are challenges between the federal state and local levels. some of the commentators are inadequate budget control, escalating health care costs, huge unfunded and to a great extent, off balance sheet retirement obligations and outdated tax systems. other factors are relevant such as demographic, such as infrastructure, etc. with regard to the federal government, there's a lot of attention on the so-called fiscal cliff which i think everybody here knows what that relates to, the schedule expiration of tax cuts, the
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schedule expiration of spending cuts and other provisions. that's really more the symptom, it's not the disease and like washington, all typically does, it focuses on symptoms rather than disease. we need to avoid the fiscal cliff but we need to recognize reality that there's only so much it could be done, the balance of this year. we need to do a credible down payment and build a bridge to a grand bargain which would involve much more fundamental reforms that have to be achieved, budget controls. we had budget controls until 2002. they expired at the end of 2002. we've had demographic spending policies and republican tax policy which is lead to large and growing policies and escalating debts. we're going to have to reform social insurance programs. we're going to have to reduce defense and other spendings. we're going to have to engage in comprehensive tax reforms and generate more revenues and that
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takes time. and it will have to involve extraordinary presidential leadership which we haven't had in quite a while and hopefully we'll get. frankly, bush 43 was terrible in this as well. the good news in that regard is i undertook a 10,000-mile 34-day bus tour focusing on swing state and a representative group of voters did the following after they heard the burning platform case about where we are. number one, 97% believe that putting our finances in order should be a top priority. 92% agree on six fundamental values that we expose to them
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for guiding a grand bargain. number three, 85% agree it was going to take a combination of reductions and revenues weighted towards spend reductions and at least 77 up to to 90% agreed on a range of fundamental reforms to budget controls, social insurance programs, health care, defense, taxes, business reforms and political reforms that are needed in order to put us on to a more prudent and saneable path. and the people ahead of the politicians, they're disgust with the lack of progress. they want results, not rhetorics. i'm in town this week for private meetings and hopefully sanity will prevail and it will do something reasonable in the short term and build a brad lidge to -- bridge to something that is transformative. we share a lot of commonalities. and we need to work together to
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create a better future. >> thank you. rudy? >> well, the first thing i should say is i have no idea what's going to happen with the fiscal cliff and i have the uneasy feeling that president obama and speaker boehner don't know either. [laughter] it's a huge possible fiscal shock. it's about $600 billion. it would be one of the biggest negative fiscal shocks that we've had since world war ii. the only thing that's comparable is when we had the vam -- vietnam surtax applied after military spending was already falling. so certainly falling off this cliff would mean a recession. i think it couldn't be much worse in c.b.o. implies for two reasons. one, the economy is very fragile right now and vulnerable to us all. and secondly, i think it has a horrible psychological impact on
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the business community and on consumers with some justification would totally lose confidence in our government's ability to govern. i agree very much with data -- david that what we need right now is some kind of down payment making some progress. down payment probably involves both the tax and the spending side and the pledge to do much more later. i think the important thing to know about the proposals on the street right now is that you could accept everything in the president's proposal and i admit some of it's quite vague and you can accept everything in speaker boehner's proposal and you would not solve the budget proposal for the longer run. in my judgment, you need about twice of what they have put on the table and i'm very troubled by the fact that we are giving
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the impression that we can solve this problem without imposing much pain on the middle class. the president has made that very explicit. he promised never ever to raise taxes on the middle class and of course, the republicans would back him up on that. but there's no way that you can solve this problem without everybody giving something. and that certainly has to involve the middle class because that's where all the money is. as for david's point about building a bridge to this bigger solution that i envision, i think we certainly have to. i'm not clear how we do that. how do we pressure the congress into returning to the issue presuming we have -- we avoid the cliff right away? and that's very hard, i think. we've had the megatrigger of this sequester. we thought that surely this
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super committee would avoid this dumb, totally irrational cut in spending and because -- well, they would avoid it and come up with something more reasonable but of course they didn't and that's what left us where we are today and it means that if this horrible trigger didn't work, what would work? and i've become very pessimistic that we become any action forcing mechanism. >> rudy, thank you. >> thank you. i'm delighted to be here today. i want to talk about four basic themes for you to think about. the first one is the discussion that we're having today is really not about the fiscal cliff at all and fiscal cliffs more than the massive tax increases and the spending cuts is also about a number of other things, including extended unemployment benefits and so
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there are a number of thing that really need to be addressed but this discussion really isn't about the fiscal cliff per se because if congress and the president, they could come together quickly and pass a bill very easily that would put off the fiscal cliff either for some large period of time or even indefinitely. it really is about making a down payment as both rudy and david had said, on closing deficits in the future, but i would say it's also really about the president's campaign, not just this past election, but the first -- his first election to like -- hike taxes on the successful. i think we absolutely have to see some real leadership on our more longer term budget unsustainable issues. what we don't need is campaigning what we don't need is negotiating in the political theater. so when we see that stopped,
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then perhaps we'll know we're going to be serious about whether we're going to resolve the fiscal cliff or have some sort of down payment. when it comes to republicans and conservatives, i think there's three things to bear in mind that are important. one of which is the house republicans were elected in essence for the opposite of what the president was elected for or one of the things that he was elected for and that were elected to cut spending and not raise tax. you see the tension that is playing itself out with regard to the fiscal cliff. and that's one of the reasons it's so hard to move forward. the second thing is there are a number of revenues that would be acceptable to conservatives. and the first one is one that speaker boehner put out almost immediately after the election and that is revenues through fundamental pro-growth tax reform and seemingly, that seems to be off the table, but this is a very acceptable new source of revenue to conservatives.
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also acceptable would be ways to reduce subsidies. so you could see more premiums, through medicares. you could also see more premiums for things like flood insurance, pension plans and so forth. these are acceptable types of revenues to conservatives that are not getting a lot of discussion or substantive discussions. also acceptable revenues are forms of privatizing. we talked a little bit about private partnerships and transportation and infrastructure. but there's also all kinds of what is that we could undertake a program of privatizing, involving asset sales and other kinds of shedding of services that would be absolutely acceptable to conservatives. in addition, we could open up access to energy sources and generate more revenues that way, but the key here for conservatives is those new revenues to the be used for more spending and that they really be used to reduce the deficit.
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how we lock that in when past experiments have been rather a failure, i don't have the solution to but it is important to note that there are absolutely revenues that are acceptable to conservatives and that leads me to the third point, which is our long-term issue as i think both david and rudy and marty as well, have explained are long-term concern is the spending issue. to the extent that we have tax revenues low today, it's not because of the rates, it's because the economy is underperforming. and the economy is quite weak right now. we should see much stronger growth and we should see unemployment much, much lower so we want to see policies put in place that both strengthen the economy and also begin to tackle this longer term spending issue that we have that has driven primarily through entitlement. so when it comes to those, there are a number of very broad
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bipartisan supported policy recommendations that are easily available should the president and speaker baner and other leaders want to come together and get serious about making a down payment on our fiscal future. and that leads me to the -- leaves me to the fourth issue which is it is possible to solve this without raising taxes and i know this because at the heritage foundation, we have done this as part of their project by the peter g. foundation, we put together our long-term plan. i have it right here, shameless promotion, i know, but we did balance the budget in less than 10 years and we did this without raising taxes. maybe it's a political choice but it's not an economic choice. and even warren buffett who has been a tireless champion of raising taxes on the wealthy to make sure they pay their fair share, whatever that is would not raise historical revenues over 18.5% of g.d.p.
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so we do need to think about is it necessary that they don't go to more spending and why are we talking about taxes right now when we have a spending problem? so that's what i would like to offer up as rich and robust conversation. >> thank you very much. we've got a lot of different kind of cross-currents going on here. i think it's interesting that, you know, when you look at the exits for getting something done, it really is artificial and conjectle. we have a date that congress put out there. i'm suggesting that there is hyperbole on both sides that look at this and say we have to act now. they see this as a date that shouldn't be wasted. a crisis that shouldn't be wasted. and i'm afraid that in sometimes
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in rushing to judgment over an artificial date that the policies get the short stick and i am not suggesting that we should go off the cliff. i do not think that is good policy, but these artificial zates that we have put in have never produced good results back in the deficit of the financial cry circumstances we put in a tarp program that some people said would cost $700 billion. something that many people, including yours truly was very, very skeptical would ever occur.
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so in putting out these artificial dates and creating this, we sometimes give the policy short shift. both all of the speakers alluded to the fact that we ought to have a down payment, a bridge to the future. i think that is a -- that's a recognition that we are probably not going to get a big deal in the very near future. while we know the pieces, the negotiation might take longer. is there something out there that we're missing that we should do or could do to ensure that whatever we decide to do in this very near period doesn't go to waste and doesn't get lost down the shuffle down the road? and i'll run it through with david first. is there something missing that we should do that we could do to hold people's feet to the fire? >> we ought to talk about what might be realistic. >> ok. >> and given the clock is ticking, we don't have a whole
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lot of time left. first, you have to look at what is set to expire and you have to separate the week from the things that should be allowed to expire and things that shouldn't. i would suggest that the payroll tax cuts should be allowed to expire. it's $127 billion. it's not needed at this point in time. it's a want, it's not a need. in addition to that, as former trusty of social security and medicare, it set a terrible precedent for social security. secondly, you clearly don't want all of the sequester to take place with regard to defense and discretionary. we've got to patch a.m.t. and ultimately, we need to get rid of it. we've got to do something -- pending more fundamental health care reforms. but other ideas. the president talks a lot about balance. i would respectfully suggest
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that's the wrong term. we need extensive solution and not a balance solution. balance implies 50-50 -- i'm a libra, with regard to revenue and spending and i don't believe that's the case. i believe it should be weighted towards spending. it's primarily a spending problem, not solely a spending problem. it involves some degree of balance. number one, tax expenditures. they're back door spending. you reduce tax expenditures, even gear towards the quote-unquote wealthy, whatever that is, it's not defined, then you reduce spending and you increase revenues. secondly, 95% of people who voluntarily sign up for medicare's voluntary programs b and d get a 75% taxpayer subsidy irrespective of their income. if you move towards means tested
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premium support, then that will generate more revenues but it will be sounded as a -- count as a spending reduction because premiums brought from medicare beneficiaries count as a reduction in spending. and if you look at indexing formulas and things of that nature that affects the spending and revenue side, you can do things that structural that will both slow spending and generate additional revenues. now, we need to do a lot more than that and i think that what we also need to do is we need to recognize reality. our goal is to not balance the budget and the states don't do it either. the way that they call it balance budget is that balance budget. they're using cash flow. what we need to focus on like a laser is debt to g.d.p. which is a lot of a lot tougher to change
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with interim milestones with enforcement mechanisms if those milestones are not hit and realistically, whatever you don't let expire, you extend, let's say to the end of september, along with the debt ceiling limit, so you have all three things come together at once with a more realistic enforcement mechanism because the nuclear device didn't work. the super committee was a super failure committee and therefore, we have to recognize that those kinds of devices won't work. you've got to have something that's more pragmatic. >> thank you. rudy? >> well, i think the discussion over the fiscal cliff has gotten more pessimistic almost every day. but we really just can't go over it. there's one thing that gives me a little hope and it does seem to me that there are three things that we almost absolutely have to fix. one, david mentioned the alternative minimum tax.
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right now, we have to fix it retroactively for 2012. if we don't do that, they'll be over -- there will be over 25 million americans that will get a real shock when they do their tax return early this year and next year and they may not be able to do it early because i'm told the i.r.s. is not prepared for the contingency of not fixing the a.m.t.'s. so they have to reprogram their computers and do all sorts of other things. the other thing is i can't imagine that we'll allow doctors under medicare to experience a 27% cut in their re imburressments. there won't be many doctors serving the medicare program if you do that. thirdly, we have to fix the state tafpblgts i recommend if
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we don't fix it, you don't die in 2013. i said that at an earlier meeting and the congressman responded but you should commit suicide in 2012. >> watch what your kids feed you. >> yeah. so i have the hope that if we could really concentrate on fixing these three things, maybe we can then broad then agreement to cover more areas on the revenue and spending side. david is right. we do have -- we do have these things that should encourage us to do something, the debt limit. i would add to that, you didn't mention the continuing resolution which we know expires march 1. so we have coming together of these things that should provide
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a very, very strong incentive to get something done in the longer run. >> yeah, i guess i would echo just about everything you guys have said. i think that the fiscal cliff is sort of this, as you started out, marty, this false deadline and indeed, this is a crisis that is entirely created by congress and the president. so you pick the right four things. i think that they have to deal with the a.m.t. they should absolutely in my book, have to deal with stock fix and there's unemployment extended benefit and, you know, i think there's a little bit more wiggle room on that one as far as perspective but it's out there as an issue and then there's the estate tax. they're really critical and they're going to have to be done and they're going to have to make some sort of discussion on what to do on the quester and tax policy and my recommendation there would be simply to extend all current policy with regard
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to those two because they are running out of time. the president's going off to hawaii shortly. so i think they may -- maybe have two weeks left and it's not the time to through complex policy issues. so they should extend them for some period of time so whether that's when in the c.r. expires. that gives them the more, you know, hard times when things, you know, hard deadlines when issues need to be addressed. david, because we've worked together for so long enlisted everyone that i would. these are strongly agreed to bipartisan issues, raise the retirement age for medicare, raise it for social security as well. index it to longevity. take care of the quotas. take care of reducing subsidies by further means testing premiums which exist today. add a premium for part a.
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consolidate the premiums and there's further means testing that could be done through progressive indexing and things like that. those are things that have been talked around around town in the policy committee. you can be do a bill very, very quickly. does it need to be done in december? not if you extend all policy and the important thing is that this makes a substantial down payment for long-term sustainability. the focus on 10 years while important, it gets you those cash flow issues, it doesn't deliver the kinds of reforms that are going to be reducing our debt to g.d.p. ratio and stabilizing it. so i don't know why we are not hearing serious conversations about this from the guys that are negotiating. and in fact, some of these things were actually included in the president's own budget. they were smaller than i would have liked to have see them. and they're included in the
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house republican budget. so simple things to do, easy to do in a bill. why don't we have conversations about that? part of the problem is if you only extend the four things that have just been mentioned and punt on everything else, there's no down payment. >> right, but you do, you're not going to extend the tax policy even though i would like to see it extended forever, that's not going to happen. >> no. there's no down payment now. you have to do some of these other things -- >> i would love to see that. >> let me tell you my concern. and i do a lot of talking outside in an inside-about way. and i'm concerned that liberals have misread the election and are overreaching. there's absolutely no question that the president, i think, campaigned on more revenues and more share for the wealthy.
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i think it's legitimate for him to say that but to say he has more than that, i think is not credible and what we're hearing right now is we're hearing grand bargain type numbers on revenues but not grand bargain type numbers by either and in spending, in addition, they're talking past each other. for example, the president says we want to reach marginal tax rates. candidly if you do what i said about tax reform, i know a little bit about taxes. you generate more revenues, you increase the effective tax rate of the wealthy more than going back to old tax policy and it's more politically acceptable for republicans to go that route and it's more in line with comprehensive tax reform which is where we need to go. so what i'm concerned is they need to focus on avoiding the cliff and build a bridge and set some targets for the grand bargain and focus on debt to
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g.d.p. like a laser. >> i agree with david. allison, you're far too optimistic here. as the republicans have become less trance gent on the revenue side, the other side has become much stronger against any kind of reforms to entitlement and i think both of us have been in meetings recently where organized groups have really come out very, very strongly about don't touch my social security and my medicare and my medicaid and so forth. now, i think what we have to do, one thing that puzzles me about all of this, if you really project where we're going to a sovereign debt crisis, seems to me that it would be inevitable if we don't change these policies.
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we see social programs slashed. so i would think if we can convince the representatives of the so-called disadvantaged groups that there is at least some probability that that will happen to us and i would say a certainty that will happen to us if we don't do something about the situation, i would think they would be much sober in their demand. at this moment, i don't see it. >> well, i would say a lot of this, if we're talking inside the beltway, that's a different conversation than when we go
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outside the beltway and part of the disservice that the debate is having today as it is, it is steering away from what the real issues are, the most pressing issue, which is this sovereign potential for a sovereign debt crisis and more optimistic. you know, it's steering the conversation away from that and it is not helping ordinary americans understand what the threat is over a somewhat longer term. i don't think we have 25 years anymore. i don't know how long we have. maybe it's two, maybe it's five, but david says three to five. of course, you've been saying that for a few years now. [laughter] but we get closer and closer. i mean, every year that we build up our debt and every year that we postpone tackling entitlements, you know, we're closer and closer to this. so i think that the disservice that, you know, that the conversation about the fiscal cliff is doing is it is taking it back. we're backsliding on public
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understanding on what the real challenges are. >> it's interesting. we had a political panel. we had more of a technical and i mean that in a broad sense, but we have an accountant, we had somebody who ran the congressional office. we had somebody that has worked in the state budgets. >> local budgets too. >> we had people that can count which is always at a disadvantage in discussing federal fans and yet -- fans, and yet we come up with a consensus of things we all know we need to do. and i -- i do not mean -- i'm kind of being a little bit of a provocateur here, but i really am worried about the fiscal finance in this country because i think we're getting a real break because europe is having the problems they're having and as a result, the world -- the parts of the world that have assess in savings don't have
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great choice. you ask europe, they look at us and say we're better. that's why when we get downgraded, our interest rates fail. but i think we're living on borrowed time. but why -- why none of the political -- why are they playing political games when there are such a real issue out there? >> first, it's more than the flight to safety. something is being done now to a degree that's never been done in the history of the united states. we're self-dealing in our own debt. the federal reserve is now the largest overview of u.s. debt and it's purchasing over 707% of all new u.s. debt issuance and it's done the twist of being able to hole down long-term interest rates to help the economy, help the housing market. if you look at people who are buying their debt, their appetite is getting less, not greater. they're buying short-term debt, not long-term debt because of
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huge interest rate risks and currency rates over time. and in china, they're looking for corporate bonds and alternative investments rather than u.s. treasury securities. so we are living on borrowed time. we've created another bubble and my view is the reason the fed's doing that is because marathon update has changed in the late 70's to where they have to concerned with short-term employment and the absence of the congress and the president work together to get a fiscal deal, they're the only game in town. we need a fiscal deal and the fed has to change kits policies because both are imprune and unsustainable over time. >> right. >> one of the most successful fiscal consolidations in the developed democratic world in the mid 1990's, and i frequently
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asked canadian politicians how did you do it? the americans went from cheering on spend and to the torrances of deficits within a matter of a year or two. and so the government in canada now with some peril if they don't balance their budgets and the answer you most frequently get is all they have to do was say at 40% of revenues was going to pay the interest bill on the canadian debt? and the public -- they realize that was not a great idea and became strongly against increasing the debt further. we can't make that argument for all our reasons david said. indeed, we've run these massive deficits because interest rates have come down. the interest bill has barely moved at all but it won't take much to change that. even with the modest projections of the congressional budget office in terms of the kind of
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interest rate interests they see over time, we're going to quadruple our interest bill within 10, 12rk years or something like that. so hopefully, that will get attention. but i almost regret the fact that america america hasn't acted more negatively to what they're doing than they have. >> if you're looking at $16 trillion in total and $9 trillion at outside debt. if they go up 2.5% or 3% percentage points, you're looking at $500,000 to $500,000 a year. so you're looking at increasing that by 50% if interest rates go back anywhere near their long-term averages. somebody said if i could change
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anything out there and we were talking about tax reform, what would it be and i said the understanding of the american people, the average american. they don't understand the tax cold. therefore, they don't really understand what it's doing or not doing and the headline was chamber of commerce calls americans stupid. i did not call them all cognizance distant. they're equally not cognizant about what's in the budget issue like having four and a. so i think that i have seen a lot of educational initiatives go on but they don't necessarily seem to have kind of any leg. i mean, how do we get the american public to understand the debate that we had here today? which is a lot more agreement than debate. >> well, first, allison and i participated in something called a fiscal wake-up tour which became the fiscal solutions tour
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and now we're doing the next generation of that which we did in september, obligate of this year. but what you have to do is you have to build the burning platform. you have to understand that the kinds of polls that most politicians are listening to have superficial and misleading. when the public is asked do you have to work longer for social security? do you want pay higher premiums for medicare? you want them to pay more taxes? no. so my point is on the other side, when you build a burning platform case which can be done in 10 to 15 minutes and i've done it thousands of times, ok? they get it. that's when you get 97% ought to be a top priority. 85% on spending and revenues,. 7% plus agreement so what does that mean? the biggest deficit is at the
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leadership deficit. we don't have leadership from our top political leaders and we need the -- the president needs to use the power of the pulpit and to be able to build that case like clinton where he used this type of approach to be able to prepare the way in that case, for social security but in this case, a grand bargain. people are way ahead of politicians. let me give you three simple ways for congress. >> number one, no budget, no pay. i'm serious. i'm one of the founders of no label. if you don't pass a budget and all the appropriations bill, you don't get paid until you do. you laugh. that's the only thing in the constitution they're supposed to do every year and they're not doing it. california did it. it had a behavioral impact, right? >> no two, no deal, no break.
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starting in 2013, they don't get any recesses until they get a grand bargain. these people get seven times more days off than the typical american and if they got paid for performance, they were owe us money. and thirdly, every member of congress should be required to prepare their own taxes. every one should be required to prepare their own taxes because what they had to do they would wake up and we'd get tax reform a lot quicker. when i go across the country, less than 5%. and as the governor knows, a lot of people, tense of millions who are alternative to the minimum tax like i am. i don't get reductions but on two things. mortgage and chairable
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contributions. so, you know, people need to recognize the reality of where we are and what we need to be and change some of the incentives in order to get people to change their behavior. >> one almost has to weep. one day we totally confused people these days is something called the baseline. the definition of the baseline is in the law and it tells c.b.o. that they have to look at the implications of current law. and when they do that, they have to assume that all these tax cuts expire as it is said.
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everybody seems to be able to choose their own baseline. [laughter] the president has its own very peculiar baseline which takes credit for saving money from ending the wars for one example. bulls simpson, as much as i admired what they did, they had an odd baseline too, which assumed that we didn't continue the tax cuts for the rich. so no wonder the public is totally baffled by all of this. i don't think other countries even use the concept of the baseline. if you look at the british austerity program, they compare what they propose to what they did last year. they're a really radical notion.
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and so, they for example, propose a path for health spending which shows ever increasing spending on health. they don't prepare to what will happen if you continue on the policy. and it's quite a bit less generous than that. whereas we, when we talk about reforming social security, talk about cuts and benefits. when all we're doing is slowing the growth. i mean, if you look at the bull simpson proposal for social security, the average real benefit for everybody continues to increase over time, not as much for the more affluent as for the lower income types. so we are so confused, the public, it's surprising that they have a vegas notion of -- vaguest notion of what's going on. >> you see this reflected if you look at simple pools is that it is confusing.
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you hear cuts. you hear tax cuts. we're not talking about tax cuts. we're talking about preventing tax increasing and they hear all this fighting and if you go out and engage with the public as david and i and rudy have done outside of washington, first place, you have to get people who are working to take time out of their busy schedule. that's hard to do. but these are really complex issues. you can't boil them down to just a little sound bite nor should we. and so this is one of the challenges i think that confronts us as you have political leaders who really are afraid to tackle major problems that involve benefits that will, you know, at some point affect everybody in this room and everybody in the country. you know, that's hard for them to do and it's really, really those demagogue it and the one thing that we should take out of it is that the public -- maybe this is a harsh word but i think
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they're pretty disgusted at the way that washington is broken down into total, you know, sort of disrepair. the fact that you're not having a serious conversation on the part of the leadership, all three parts of it, about the fiscal cliff is you know, really a part of the -- a major part of the problem and we just had an election and we can't stop campaigning. we've got this deadline. whether or not it's artificial, the debt limit isn't and the need to pass the budget isn't, so no wonder the public tunes out. >> i thnk the word you use is the right word. it's disgusted. it's not disillusioned. it's not sadness. it's disgusted. if there was a mandate, the mandate was since the republicans return to the house, the democrats to the senate and the president was re-elected. the mandate is start working together to solve problems. >> on that note, we're going to open it up for a couple of
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minutes for questions from the audience. get the mic. identify yourself and fire away. >> ok. we'll get you next. go ahead. >> good morning. my question is what advice do any of you have for organization that provides insurance companies to -- we're looking for alternatives to the future. >> well, anybody want to jump in? >> real quickly, government's grown too big, promised too much, waited too long to restructure but it's not too late. when it restructures, it's going to spend less, significantly less than projected. it's going to tax more than historically it's taxed, which
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means two things. the charitable sector's going to be more important which is the reason why it didn't make sense for charitable contributions. charities need to recognize that reality and they need to figure out what they can do to try to improve their role and retain, you know, some -- you know, some level of support for charitable contributions to bona fide charities through the tax law. >> but the problem is not what we promise the poor. the problem is what we promise the middle class and mainly the middle class elderly. and our expenditures on medicare and on social security are literally squeezing the life out of their rest -- the rest of the government. so i think at cat si groups for the poor should be among the strongest proponents of fixing these programs.
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it will not impact the poor at all. >> i do think that there are -- we have a myriad of anti-poverty spending programs in this country. they don't all have good outcomes. and so i think as you -- as groups think about these issues, it's important to focus on outcome, on streamlining programs and really on what is that we can strengthen civil society and the partnership between private charities and the relationship with those that they help. certainly the government is going to have a role. we want to have a safety net. we want it to be strengthen, streamlined and we don't want incentives to remain that lead to further low income and walking of this and that's the unintended consequences of great society programs.
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so by separating what i would call a reciprocal arrangements and doing something in exchange for them, so in other words, welfare in exchange for work and marriage, those are things that further indicate behaviors that keep people from their poverty level. so what are the outcomes that we want and what are the policies that are married to any of those spending programs that are important that are going to help more people get out of poverty? the only other thing that will go along that is make sure we have programs go in place to meet -- pro growth plan is one that gets the economy growing as fast as it can and to help better wage growth. >> i think we have time for maybe one more question. dick, you want a quick one? could we get a microphone up here, please?
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dierks right behind you there. >> just one fast comment. david in new york, we passed a law -- saying the banks lend the legislatures enough money. [laughter] so it never became a problem. my question is as follows. the fed, as you point out, as enormous amounts of financial asset. if they were to let interest rates go up, the decline and the values of those assets have an even more shocking impact on our economy. is that not true? how do we ever give out? if the fed is continuing to buy these financial assets at the rate they're doing now, how do we get out of that mess? and second, i agree to
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everything you all said. you didn't really disagree about the problem but to me, i would look at the way our politics is advanced. they really have such an amount of leverage on this process and they're the one. s that are not compromising and they're driving in addition to the lack of strong political issues. they're the one who is are driving an extension of the stalemate. >> i'll only answer your first question on the fed. the fed holds short term. they hold some long term. the long term is staggered. right now, there's about $40 billion a month that the fed is repurchasing. if they just stopped repurchasing, they would unwind that balance sheet very quickly. the banks have redeposited the proceeds of those funds at the fed and they're getting paid 25 basis points.
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the fed can change that as well and unwind the bank's willingness to swap arrangements with the fed. but just the runoff would allow the fed very, very quickly, to reduce their balance sheet if they so chose. as rudy pointed out, as david pointed out, right now, in terms of keeping the economy going, the feds like the only ballgame in town and what they're really trying to do, not so much is create lending by the banks at the retail and local and business level. we're trying to recapitalize the banks and providing tarp 2 by subsidizing the bank that they engage in and as i said, it's about a $35 billion subsidy a year. i think that's an issue that's outside the issue that we've talked about here. and in this one, for many other seminar on the fed policy. we could really start an argument on that one. >> i would suggest that the law
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that they pass in new york did include one of the provisions i said. no retroactive pay so in other words, they might be able to borrow money for cash flows but they lose the money forever. >> a couple of points on the fed. i wouldn't worry about the capital losses on their balance sheet because central banks worked in the philippines when air central banks have a huge negative equity. so central banks can go on without necessarily ending a post-positive act. and secondly, they have all sorts of tools that they can theoretically use other than having to unwind their balance sheet. they can increase reserve ratios. they can increase the interest rates they pay on okay says so they have a lot of controls out there which make me less worried about the fed balance sheet. not that i approve of what they
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were doing recently but i think they can get out of it fairly easily. >> and i would just add that i think the president said this massive fed undertaking you know, in almost a desperate kind of way, gets at the underlying problem. this is not a monetary policy issue. this is a fiscal policy issue and we have an absolute lack of leadership. this threat of the tax policy expiring all tax policy si -- policy is a completely congressional made thing and congress and the president have refused to work on it until now. so, you know, likewise, they have refused to tackle the spending part on both of which get us to our debt. so, you know, you have this utter look of anything happen responsibly on fiscal policy that is having a drag today on the economy. and so the poor fed is left to try and do something to grow --
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to certainly, tackle the employment issue. so again, we're back to the fact that we have to have things happening on the budget. we have to have some serious steps taken on entitlements in particular. and we need stability in tax policy. >> with that, i'm going to call an end to this. i want to thank david. i want to thank rudy. i want to thank allison. it was a scintillating discussion. we could go on for hours and, you know, but i think it's important to understand the one commonality that all of us up here share and that is that this is real. it will have real impacts. it's a real problem. we know what the solution is. everybody that deals wit knows what the solution is. we're kind of arguing a little bit about where we can lean more one way or the other and while we're doing that, our country and our economy is suffering.
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so we need the leadership. we need the congress and the administration to come together and to find the commonalities that have been laid out here and move this direction in the right direction. it doesn't have to be an absolute perfect answer. there is a lot we can do to make the situation better and unfortunately, i'm not sure we're getting anywhere on this one. so with that, i want to thank the audience. i want to thank the panel. and we'll call an end to this and let you all go out and contemplate to what they said here today. thank you all very much and thank you very much. [applause] [captioned by the national captioning institute] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]
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>> today on c-span, "washington journal" live with your calls, tweets and e-mails. followed by "newsmakers" with incoming kathy mcmorris rodgers. and later, ben bernanke talks about interest rates. >> my inspiration was the idea that i wanted to explain how to tell terrorism happens. we do know the story of the cold war. we know that the documents. wee seen the archives that described relationships roosevelt installed in churchill and truman. we know the main events from our view. we've read them. we've written them. i want to show from the ground up, a different angle, what did it feel like to be one of the
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people who were subjected to this system and how did people make choices in that system and how did that react and how did they behave? one of the things that's happened since 1989 is the region that we used to call eastern europe has become very dishuated. these countries no longer have much in common of one another >> more with anne applebaum from the end of world war ii through 1956, from her historical narrative, "iron curtain" tonight at 8:00 on c-span's q&a. >> this morning, stan colander and joshua gordon have the latest on the fiscal cliff negotiations and then the structure of freedom works
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